Over the last five decades, Atlantic Canada has trailed the rest of Canada in economic growth - with a few exceptions – and there are at least two structural reasons for this weaker performance.
The first is population distribution: Atlantic Canadians are more than twice as likely to live in rural areas, relative to the rest of the country, leaving many with limited economic opportunities and overly dependent on seasonal work. This reduces overall economic output and growth.
The second problem is the composition of the workforce, which is proportionately more likely to work in the public sector. In Canada, one-in-five jobs are in the public sector, according to the latest Statistics Canada numbers for 2018, but in the Atlantic region, that number is one-in-four. This means, proportionately, the private sector is smaller and can’t grow the economy in the same way as elsewhere in Canada. This is analogous to playing a man short on a hockey team for the whole game and hoping to at least tie the other team. This is important if you believe, as I do, the private sector is most responsible for growing the economy through job creation and capital investments.
There are civil servant jobs with the federal, provincial and municipal governments, not to mention various Crown corporations, as well as jobs in public education, universities and colleges, healthcare, policing, fire protection, and the military. These are, mostly, well-paying jobs and do contribute to the economy. But these jobs must be balanced with the economy’s ability to afford them.
The higher proportion of public sector jobs in PEI has been funded by transfer payments, debt financing, and higher taxes. Without real economic growth, increasing the population and more taxpayers, the tax burden will only increase in a region that already has some of the highest tax rates in the country.
The best jobs in many Island communities are often in the public sector, which offers better job security, increasingly competitive salaries, generous pensions, and many benefits not available in the private sector, including a generous sick time leave policy (currently 15 days a year for provincial workers, with the ability to bank up to a year’s sick time leave).
In the increasingly competitive talent market, the public sector has a distinct competitive advantage, particularly for federal jobs, which are paid at national rates. In PEI, the average weekly salaries are about 20 per cent lower than national salaries, according to Statistics Canada, largely because salaries, particularly those in the private sector, are tied to regional market conditions.
Twenty-six per cent of Island jobs are in the public sector, according to 2018 Statistics Canada numbers. This is the second highest percentage of public sector workers in Canada. The good news: the gap between the percentage of public sector jobs in the province and those in Canada has been declining since peaking following the Great Recession and is now lower than before the recession. This has largely been driven by substantial population growth on the Island in recent years, which has contributed to both job growth (mostly in the private sector) and economic growth.
There continues to be a need to re-balance the workforce composition over time in PEI to drive economic growth at national rates and continue this momentum.
Public sector growth should be aligned with population growth. In the past, public sector job growth exceeded population growth. This will be challenging, given the population-driven healthcare demands of an aging population. The priority focus must be on growing the private sector. A more streamlined regulatory environment would help, and some of this work is happening now.
It’s also essential to ensure the tax environment is competitive. Consideration should be given to outsourcing non-essential services to the private sector on a competitive basis. We already do this for garbage services in most municipalities - what else is possible?
We need to establish an objective for the province going forward: for every new public sector job, four private-sector jobs must be created. Alternatively, limiting public sector growth to match population growth will re-balance the workforce over time and allow the economy to grow at least at the same rate as the rest of the country. Our ability to afford and sustain public services will increase and the tax burden will be more equitably shared among an increasing number of taxpayers.
MORE FROM DON MILLS:
- Could more Prince Edward Islanders face poverty in retirement if changes aren’t made to the CPP?
- Can Prince Edward Island afford eight hospitals?
- Private sector must take the lead in retaining immigrant workforce on Prince Edward Island
- P.E.I.'s higher-than-regional average of immigrants boosting the economy
- Prince Edward Island has the best economic growth in Atlantic Canada — but is it enough?
Don Mills is the former owner of Corporate Research Associates and a recognized expert in data trends in Atlantic Canada. He can be contacted at [email protected] or on Twitter at @donmillshfx
